From the 1,171-bed Al-Jahra Hospital, which is close to completion in Kuwait City, to the planned 700-bed New Sultan Qaboos Hospital in Salalah, Oman at the opposite end of the GCC, huge sums are being poured into Gulf hospitals to improve service provision.
Healthcare is often one of the biggest items in any Gulf government’s budget. Riyadh, for example, has earmarked $39.2 billion for health and social development this year, the third largest part of its budget after defence and education.
In Saudi Arabia, as in the rest of the region, health spending has traditionally been dominated by the public sector, with governments accounting for 65-84% of expenditure in various countries, according to consultants EY. That is much higher than in some developed economies such as the U.S. where it is 47% or Singapore where it is 41%. However, the landscape is changing and GCC governments’ share of total healthcare spending is expected to fall in the coming years.
Hospital projects are a major part of the region’s capital spending programme. There are 682 active healthcare projects in the GCC, with a total value of $57 billion as of February 2018, according to construction analysts BNC Network. That includes 433 active hospital projects worth a combined $48 billion. There has been a dip in activity over the past year but Avin Gidwani, chief executive of BNC Network, says this may be a blip rather than a longer-term trend.
“In 2016 there were $65 billion worth of awards. In 2017 it was $35 billion, so there was a slowdown last year,” he says. “We expect that to continue for at least the first half of this year, maybe a bit longer, and then we’d expect to see a pick-up again. There are a large number of projects in the concept and design stages that have just been on hold.”
If and when the market does accelerate, a growing proportion of the spending could come from the private sector rather than the public purse. There are a few good reasons for this. Populations are continuing to expand but oil revenues remain too low to balance governments’ budgets, creating an incentive to cut costs where possible. Among the areas that could be targeted are domestic healthcare spending and the long-standing habit of sending patients abroad for specialist (and often expensive) treatment. In both cases, cuts will create room for the private sector to step in.
Already, the rollout of mandatory private health insurance in some countries such as the U.A.E. is pushing some of the cost of healthcare away from the government and onto employers and consumers. Private firms are also building and operating more healthcare facilities, allowing states to reduce their capital budgets. Those involved include local players such as the U.A.E.’s NMC Healthcare and major international firms such as South Africa’s Mediclinic International and Austria’s Vamed.
Private firms find the market an attractive prospect for several reasons, including growing demand for services that are often non-discretionary. While the region does have a young population, the average age of locals is steadily rising and some prevalent diseases linked to poor lifestyle—such as diabetes, hypertension and obesity—afflict young and old alike.
“The surge in demand is mostly driven by the needs of GCC nationals who are rising in number, getting older and increasingly suffering from lifestyle conditions,” says Yaser Moustafa, senior managing director at NBK Capital Partners, which has invested in a general hospital in Kuwait among other things. “Add to that the desire by GCC governments to curtail spending on healthcare provision abroad and the rate of growth becomes much higher. When we look at supply we see there is still a gap relative to other geographies and, more importantly, quality is not being delivered at the right cost structure in an efficient manner.”
As he suggests, a key motivation of governments is to find a way to provide more efficient, cost-effective services. One answer that many authorities have hit upon is to develop new hospitals and other facilities through public-private partnership (PPP) models. The rate of development differs from country to country though, with the U.A.E. leading the way, Kuwait the slowest-moving and the others at points in between.
Alongside that, there has also been an attempt to use the healthcare sector as a way to diversify economies by developing the market for medical tourism, enticing patients in from abroad for treatment. “They’re trying to create a niche for medical tourism and to some degree that’s what driving some of the glitzier investments with the five-star hospitals,” says Gidwani.
Overall, the changes underway are starting to amount to a fundamental shift in the role governments play in healthcare, moving from being both a provider and regulator of services to a situation where they focus on the latter. The U.A.E. is in the leading position in this regard, but it is happening to some extent in most countries.
“Traditionally the public sector in the GCC has operated as well as regulated healthcare services,” says Ahmed Faiyaz, an adviser on health investments at the Dubai Health Authority. “However, in recent years with reforms and initiatives taken in the U.A.E.—which leads the way—efforts are being made for the public sector to be the regulator, oversee the performance of health facilities and services and increasingly let the private sector provide healthcare services.”
Not everyone is necessarily well served by the changes. While nationals and better-paid expatriate workers continue to have access to good services, those at the lower end of the pay scale can fare less well, particularly if their employer only pays for a basic level of insurance cover.
There are other potential gaps in private sector provision too. Not all types of healthcare are profitable and some areas will inevitably be of less interest to profit-maximising companies. The reality is that private investment tends to be focused on areas where there is both strong demand and where patients’ bills can be readily settled, either by insurance companies or governments. The state will have to continue being the main provider in other areas.
“There has been a shift from general hospitals to models based more on service-focused centres of excellence, where you’ll have an orthopaedic hospital or a maternity hospital. When that happens, governments will still need to step in to ensure that healthcare services are still offered across the portfolio, across therapeutic areas,” says Hanu Tyagi, research analyst at the Max Institute of Healthcare Management at the Indian School of Business and a former healthcare consultant in the GCC.
Despite the enthusiasm governments increasingly have for private sector involvement in their healthcare systems, it seems likely that the state will have to continue picking up some large hospital bills in the future. But the trend towards privatisation seems likely to continue and indeed could yet accelerate in some markets such as Saudi Arabia, where inward investment agency Sagia says spending is likely to total $180 billion over the next five years.
“Future investments in the sector will be heavily dependent on the direction and pace of privatisation within the GCC, and especially in Saudi Arabia,” says Dr Sven-Olaf Vathje, a partner at consultancy firm Oliver Wyman. “The next 12 months will be telling as these plans should become more crystallized.”